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The Connecticut legislature passed H.B. 5435 on May 1, 2010, which authorizes a personal income tax credit of up to $250,000 for an "angel investor" who makes equity investments in start-up Connecticut businesses in specified sectors. If Governor Rell signs the bill - and it is expected that she will - the credit will equal 25 percent of cash investments larger than $100,000 that are made in exchange for equity positions in eligible Connecticut businesses. The bill is to take effect July 1, 2010, and apply to taxable years commencing on or after January 1, 2010. This "Angel Tax Credit" is intended to assist Connecticut start-ups in obtaining financing by incentivizing angel investment.
Angel Investors
As defined in the bill, a person qualifies as an angel investor if he or she is an accredited investor under Securities and Exchange Commission rules (for example, an individual whose net worth exceeds $1 million or whose annual income exceeds $200,000). The credit is also available to networks of accredited investors but does not apply to 1) any person controlling a 50 percent interest or more in the business in which the investment is made; 2) venture capital companies; or 3) banks, trust companies and insurance companies. If the angel investor uses a partnership, S corporation or LLC for the investment, the tax credit will pass through to the partners, shareholders or members.
Eligible Businesses
In order to be eligible for a qualifying angel investment, a business must meet certain criteria. First, the business must be engaged in bioscience, advanced materials, photonics, information technology, clean technology or any other emerging technology as determined by the Connecticut Department of Economic and Community Development. The business must also have its principal place of business in Connecticut and:
Businesses that meet the above criteria must apply to Connecticut Innovations, Inc., a quasi-public corporation, which will maintain a listing of eligible businesses.
Administration of Credits
An angel investor in an eligible business may apply to Connecticut Innovations, Inc., to reserve the credit. The aggregate annual amount of credits to be reserved under the bill is capped at $6 million for fiscal years from July 1, 2010, through July 1, 2012, and $3 million annually thereafter until July 1, 2014, when the program is set to expire. Credits must be claimed in the year the investment is made and may be carried forward for five taxable years. Angel investors receiving the credits may not transfer them to another taxpayer.
Whether you are a Connecticut start-up company exploring financing options or an investor evaluating a position in a Connecticut business, our attorneys would be happy to provide practical advice and assist you in all stages of the process.
Day Pitney is sponsoring the Connecticut Entrepreneurs Forum's "Connecticut's Entrepreneurial Ecosystem: A Smart Tech Success Story," webinar on March 30.
On March 16, Day Pitney Partner David M. Waizer will serve on the panel, "Drafting Lasting Business Contracts: Simple, Powerful Strategies That Stand the Test of Time," presented by the New Jersey Institute and the New Jersey State Bar Association.
Day Pitney Advisory
On January 31, David Waizer will be speaking at "Drafting Lasting Business Contracts: Simple, Powerful Strategies That Stand The Test of Time," a program and live webcast presented by the New Jersey Institute for Continuing Legal Education, a division of the New Jersey State Bar Association.
On January 15, Brian Fischer spoke at "When Good Deals Go Bad – Pitfalls to Avoid During the Sale Process," an Exit Planning Exchange (XPX) program held at The Hartford Club in Hartford, CT.
VCV Digital Technology announced that it plans to become a publicly traded company via a business combination with Fortune Rise Acquisition Corporation (NASDAQ: FRLAW, FRLA and FRLAW), a special purpose acquisition corporation.
Day Pitney Press Release
New York Partner Kritika Bharadwaj's promotion to partner was featured in the New York Law Journal's On the Move column.
Richard Harris was featured in the launch announcement of the Connecticut Entrepreneurs Forum™, a new not-for-profit (501c3) organization, which offers entrepreneurs opportunities to build community, collaboration, and connection.
Day Pitney Press Release
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